Trade Flashcards
Free trade
Trade between countries without any barriers such as tariffs quoters embargo’s et cetera
Benefits of free trade
-increased efficiency and increased allocation of world resources due to comparative advantage
-Access to goods that wouldn’t be produced domestically
-The lower prices therefore higher consumer surplus in increasing competition and leading to economies of scale and technological transfers
-Creates consumer choice
-economic growth
Why is world supply a horizontal line?
The whole world supply just for one country’s market is so high that the world supply doesn’t need increases in price to supply great levels of quantity as wall supply has comparative advantage
Protectionism
Protect industries from imports through tariffs quotes embargo et cetera
Tariffs
Tax on import
Quotas
Physical limits on the quantities of imported goods
Embargo
An official ban on trade
Reasons for protectionism
-infant industry argument
-Protect against dumping
-Protect domestic employment
-Protect against unfair labour costs abroad
-Protect product standards (environmental/product safety standards) protecting against poor quality and contaminated products
-Raise government revenue
-Improve current account deficit (does risk retaliation)
-to avoid the risk of over specialisation
Infant industry argument
If there’s a new developing firm in a nation that doesn’t have the time to grow like his international rivals the government tariff imports to allow domestic firms to grow and compete with international firms
Although this allows room for small firms for inefficiency
This is a form of short term protectionism
Protecting against dumping
Sale of goods below cost the production due to access subsidies on firms in overseas nations. This access supply of a nation means they made dump goods and services into another country below costs of production.
Domestic industries cannot compete with the price below costs so tariffs can make them more expensive and quotas reduce the amount
However, it is hard to prove taking place if you placed tariffs and they are not dumping retaliation can take place
Trade talks a better
Reasons for tariffs
-infant industry
-Dumping
-Domestic employment
-low-cost labour
-Increasing government revenue
-improve current composition
Tariff graph analysis
-Excess demand since price is perfectly elastic for world supply
Prices cannot rise to reduce consumer surplus and decrease access demand
-tariffs are placed and excess demand and imports reduced
Domestic supply has been extended
Domestic producers are not as efficient therefore there is a loss in the world’s efficiency
Disadvantages of tariffs and protectionism
-Market distortion
Increase in price, decrease in consumer surplus and decrease in choice
-Production/allocative inefficiency
Domestic supplies producing more at a higher cost of production due to lower comparative advantage is inefficient
-Retaliation-(trade war, possible increase in tariffs on you)
-reggressive as it affects basic items
Evaluation points for a tariff diagram
-depends on the elasticity of the supply and demand curve
World trade organisation
International organisation that regulates world trade
made of 166 member states
According to WOT ideal trade would be
-non-discriminatory
-Free from barriers
-Predictable
-Promoting fair competition
-Beneficial for developing countries through special provisions
international competitiveness
the ability to compete successfully overseas and to sustain improvements in living standards and output
3 ways to look at international competitiveness
-price competitiveness
-non-price competitiveness
-ability to attract FoP(FDI)
ways to measure international competitiveness
-ULC
-GCI
-TOT
factors that determine international competitiveness
-ULCs
-labour flexibility
-labour skills
-tax regime
-innovation
-infastructure
-regulation
-economic stability
Reasons to improve international competitiveness
-to rebalance the economy, an economy depends on consumption/ gov spending for growth, then increases international competitiveness can create new avenues of growth
-increased long term sustained growth
supply side policies
to increase price/non-price competitiveness and attract FDI
- gov spending on infrastructure, transport = increased efficiency of businesses moving G/S, means they’re cheaper meaning they’re more price competitive which attracts FDI
-tax incentives, lower corporation tax, increases retained profit to invest, increasing business efficiency, lower prices, more price competitive and attract FDI
-deregulation reduces CoP
-gov spending on education, increase education, improves skill, increasing business efficiency, decrease price…
